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The newly elected Alberta government could pay a premium if it tries to transfer $3.7 billion worth of crude-by-rail contracts to the private sector, former premier Rachel Notley said, the same day the UCP government restated its commitment to getting out of the contracts and one day after the head of Canada’s largest railway said he would work with the new premier to find solutions.

In an interview Thursday, Notley, now Opposition leader, said the contracts — which her government signed earlier this year and include leases for up to 4,200 rail cars capable of carrying an additional 120,000 barrels per day out of the province — did not include any particular provision or penalty for terminating them early. However, she said it’s unlikely the government will be able to transfer the rail capacity to private oil shippers (an option which some industry players have suggested) without paying a price.

Government will pay 'premium' if it shunts aside rail leases, Notley warnsBack to video

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“You have a contract,” Notley said. “When you try to get out of a contract, you either negotiate the means to get out of it or you have to pay some kind of premium to get out of it.”

Transferring the contracts to the private sector was not ruled out earlier this week by Canadian National Railway chief executive Jean-Jacques Ruest. While Ruest told reporters that CN has already built out its capacity in preparation for the Alberta government contract taking effect July 1 — and that capacity must be paid for — he said he is open to alternative arrangements that would put the excess capacity to use.

“A lot of things are possible,” Ruest said. “It doesn’t have to be the way it was envisioned back in December, when discussions first take place.”

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UCP Energy Minister Sonya Savage said Thursday the government is currently sifting through the contracts and considering a variety of options, but remains committed to getting out of the crude shipping contracts.

Alberta Premier Jason Kenney and Minister of Energy for Alberta Sonya Savage, right, prepare to appear at the Standing Senate Committee on Energy, the Environment and Natural Resources about Bill C-69 at the Senate of Canada Building on Parliament Hill in Ottawa on Thursday, May 2, 2019.THE CANADIAN PRESS/Justin Tang

“We made it very clear we’re not going to be in the business of shipping crude by rail,” Savage said in an interview. “Nobody should be surprised — that was a key part of our platform.”

Savage added there are several different contracts at play, making the situation complicated. She called the Notley government’s decision to sign contracts just prior to an election campaign “unconscionable.”

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“That’s not normal, for governments to bind successive governments that way,” Savage said.

However, Notley said a lot of thought went into her government’s oil-by-rail plan, adding Kenney will be making a mistake if he scraps it. She said if the private sector picks up the leases, the extra capacity will likely go to the large integrated producers and not to the small companies who were being hurt the most by the widening price differential for Alberta crude.

“This idea of selling off portions of our capacity to particular players actually creates investor uncertainty and raises the risk of being in a position where only those who can afford it end up buying the capacity,” Notley said. “We’ll end up right back into a situation where the differential blows up again and we find smaller producers selling at distressed barrel rates.”

She added while getting out of the contracts may save the Alberta government money in the long run, it also means the government will miss out on the extra oil revenues that would have flowed into government coffers.

“There’s a lost opportunity cost, by way of not making the money we anticipated the deal would make,” she said.

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